Greek Zero Hour: Default or Lickspittlry

The flurry of activity yesterday and today surrounding Greek debt negotiations is succinctly framed by this two-sentence paragraph found in "European Leaders Assemble for Urgent Meeting on Greek Crisis," by Liz Alderman, Niki Kitsantonis and Jack Ewing:

Unless they strike an agreement soon, Greece may not be able to make a series of coming debt payments. On Friday, Greece must make a €300 million loan repayment to the International Monetary Fund, and it owes €1.2 billion later this month.

Yves Smith at Naked Capitalism, "Greece’s Creditors Meet to Prepare Offer (Updated – Creditors Agree on Terms)," seems confident that Greece can meet Friday's deadline and has enough wiggle room to survive the month:

The press is awash with reports of a high-level meeting convened yesterday by Angel Merkel and attended by Francois Hollande, Christine Lagarde and Mario Draghi. The upshot is that Greece’s creditors have agreed to sort out their differences and come up with a proposal to present to Greece in the next few days. Greece is generally believed to be able to make its €300 milllion payment due to the IMF on Friday; if not, it has the expedient of asking to bundle payments under an existing IMF rule, which would give it till the end of the month to remit the €1.5 billion it has coming due in June.

So why the splashy optics of a Monday-night emergency powwow of big shots? There are several "technical" issues in play. Two key ones are pension overhaul and the value-added tax. The euro honchos convened to finalize an agreement on which of Syriza's "red lines" Greek leader Alexis Tsipras must cross.

Smith says that Tsipras is giving ground on pensions, agreeing to raise the retirement age to 67. The endgame here is to cripple Syriza and beat back any challenge to a bankrupt neoliberal orthodoxy. If Tsipras is made to kneel, violating his own campaign promises to protect if not increase pensions, and schlep a pension-cut deal back to parliament for approval, the troika will have won. Syriza's parliamentary majority will splinter. Already the Left Platform bloc of Syriza is gaining momentum. Left Platform wants to default on debt payments and return Greece to the drachma. As Alderman, Kitsantonis and Ewing explain:

Far-left Syriza lawmakers have become increasingly agitated recently, accusing Mr. Tsipras of making too many compromises on the anti-austerity pledges that helped sweep the party to power in January’s elections.

A new political uproar broke when a group of Syriza lawmakers refused to back the government’s nominee for a new representative at the International Monetary Fund, Elena Panaritis, a former Greek parliamentarian who once worked at the World Bank. In a letter on Sunday, more than 40 Syriza members, mostly lawmakers, took issue with her support of Greece’s last international bailout agreement in 2012, which the party considered to have been unfair and overly harsh. Ms. Panaritis withdrew from consideration on Monday, citing the opposition.

Although symbolic, it was the latest in a series of uprisings within Syriza, which during the election campaign had promised to take a hard line with Greece’s creditors in debt negotiations and to resist austerity measures. A hard-left faction recently pressed for but lost an internal central committee party vote to have Athens stop paying its creditors altogether if they demanded further austerity.

Mr. Tsipras is facing an array of pressures as critics from both the left and right in the Greek government question whether he has a viable plan to restart the economy, which slid back into a recession in the first quarter. At the same time, Greece’s creditors, the I.M.F. in particular, have resisted unlocking any aid unless the government can show that it will put its finances on a sound footing and run enough of an operating surplus to make regular debt payments. 

The dispute over Ms. Panaritis on Monday “shows that there’s a lot of exasperation in Syriza ahead of a deal with creditors,” said Harry Papasotiriou, a professor of political science at the Panteion University in Athens and the head of the Institute of International Relations. 

Even if dissent within Syriza deepens, the government would probably band together to push through any legislation needed to secure the bailout funds. Few lawmakers want to precipitate a default or force Greece to exit the currency union. But the hard-liners of Mr. Tsipras’s party could eventually break away, analysts said, especially the Left Platform, a faction that has already pushed for Greece to stop paying its creditors if they continue with “blackmailing tactics.”

This is the outcome I believe Merkel, Largarde, Hollande, Draghi et al are after. They want to force Tsipras into "Obama mode." Talk "hope & change" and deliver more of the same. Syriza's governing majority collapses as a result, and the moral to the story becomes, "See, that is what happens when you try to change the order of things."

AP is reporting this morning (Elena Becatoros "Greece submits draft bailout plan, creditors say not enough") that Tsipras has delivered a proposal to the creditors, and he's talking tough:

"It is now clear that the decision for whether they want to adapt to realism and emerge from the crisis without the division of Europe ... belongs to the political leadership of Europe," Tsipras said.

In the end, this is all a Kabuki. There is no alternative to a default. Greece has been hemorrhaging capital and must soon implement controls. This is the last paragraph from the Alderman et al piece:

In the meantime, Greece’s finances continue to deteriorate as deepening political uncertainty accelerates a decline in tax receipts and withdrawals of deposits from the nation’s banks. Last week, Greece’s central bank reported that deposits fell in April to €133 billion, the lowest level in a decade, after savers withdrew nearly €5 billion from the banks during the month. More than €30 billion was withdrawn between the end of last November and the end of April, according to the Bank of Greece.

And yet the troika persists in maintaining the fiction of robust primary surplus targets. According to Smith:

Things are even worse than they appear. The target for this year was 3%, and 4.5% for 2016. Most observers thought both figures were insane. And remember, when Syriza assumed office, Greece has a small primary surplus. As of April, the IMF projected a deficit of 1.5%, and matters can’t have gotten any better. To just meet Greece’s ask of 1% now means a swing of a full 2.5% of GDP, almost the unreasonable level they were expected to hit for 2015. Even if the creditors make what they think is a generous offer of 2% for 2015, that is equivalent to an asphyxiating 3.5% consolidation from the new starting point of negative 1.5%. 

So the creditors may have read too much into Tsipras’ offer to negotiate on pensions. Or they may feel they have to go this step regardless of whether their gambit will work. Or they may be in denial as to how badly Tsipras has been boxed in by his Left Forum (although he can always cut a deal with To Potami). At a minimum, both sides appear to finally be about to get out of the Groundhog Day phase of these negotiations to an end game. 

Zero Hour is rapidly approaching (although this has been said many times before). The "Either/Or" here seems clearer than before. Either Greece defaults on its debt, or Tsipras brings back the creditors' crummy deal to parliament and manages to get it approved only to see Syriza splinter, and with it the momentum of a resurgent Left.

Ukrainian Junta Near Collapse: Merkel & Hollande on Bended Knee in Moscow, Begging for a Ceasefire

Since Novorossia forces regained control of the Donetsk airport at the end of last month the quality of reporting in "the newspaper of record" has been atrocious.

For example, take the captioning of the photos. Invariably a picture of the damage wrought by the shelling of Donetsk will appear in the Gray Lady's pages accompanying a one-sided story that largely parrots U.S. State Department statements. The photograph below from today's story ("U.S. and Europe Working to End Ukraine Fighting," Michael Gordon and David Herszenhorn) is case in point:

"A city official in Donetsk, Ukraine, inspected a building that local residents said was damaged by shelling on Wednesday." CreditMaxim Shemetov/Reuters

Note that the origin of the shelling goes unidentified. The most fundamental aspect of reportage, in this case that the Ukrainian Army is shelling civilians in Donetsk, is being purposely obscured by "the newspaper of record." 

This kind of crude, cynical thought control, which most Westerners would dismiss as atavistic, totalitarian, Stalinist, has been a regular feature of The New York Times coverage of the Ukrainian junta's Anti-Terrorist Operation (ATO) against the people of the Donbass. 

Most people don't read complete stories. Most people will glance at a headline, look at the pictures and then turn the page. Since the Western media has been overwhelming in its condemnation of "Putin's aggression" against Ukraine, most people will incorrectly assume that Russia is responsible for the destruction.

Of course people who follow the news know better. Any glance at the comments section that accompanies a story on the fighting in Ukraine reveals people by huge margins opposed to the U.S. role -- such as the decision being debated by the Obama administration whether to supply sophisticated lethal weaponry to the junta -- in exacerbating the conflict. More than anything, the U.S. role in last February's coup in Kiev, followed by the herding of Europe into sanctioning Russian for its defense of Crimea. and the Ukrainian junta's ongoing assault on the civilians in the Donbass, proves that neither was Obama worthy of the Nobel Peace Prize nor is there substantive democracy in the United States, where there is next to no support for Obama's New Cold War.

But now the New Cold War is rapidly getting very hot. Mike Whitney has a must-read story today on CounterPunch, "The Fallujah Option for East Ukraine: The Real Reason Washington Feels Threatened by Moscow." Whitney concludes his piece on a pessimistic note :

NOTE:  The Novorussia Armed Forces (NAF) currently have 8,000 Ukrainian regulars surrounded in Debaltsevo, East Ukraine.  This is a very big deal although the media has been (predictably) keeping the story out of the headlines.

Evacuation corridors have been opened to allow civilians to leave the area.  Fighting could break out at anytime.  At present, it looks like a good part of the Kiev’s Nazi army could be destroyed in one fell swoop.  This is why Merkel and Hollande have taken an emergency flight to Moscow to talk with Putin.  They are not interested in peace. They merely want to save their proxy army from annihilation.

I expect Putin may intervene on behalf of the Ukrainian soldiers, but I think commander Zakharchenko will resist.   If he lets these troops go now, what assurance does he have that they won’t be back in a month or so with high-powered weaponry provided by our war-mongering congress and White House?

Tell me; what choice does Zakharchenko really have? If his comrades are killed in future combat because he let Kiev’s army escape, who can he blame but himself?

There are no good choices.

I believe Whitney is right. Merkel and Hollande, the German chancellor and French president, respectively, are in Moscow basically begging for a ceasefire because the Ukrainian Army is about to sustain a seriouspotentially crippling loss. Things are so bad that the idea is even being floated of creating a whole new separate Ukrainian military.  This is broached in the Gordon and Herszenhorn report mentioned above in terms of revelations regarding a Russian intelligence penetration of the Ukrainian military:

The head of the Ukrainian security service, Valentyn Nalyvaichenko, said at a news conference on Wednesday that the accused spy, Lt. Col. Mykhailo Chornobai, had been at the center of an espionage ring in the capital and had passed military secrets directly to an agent of the separatist Donetsk People’s Republic, including the locations of volunteer regiments that were then used to pinpoint artillery attacks.

Dmytro Tymchuk, a military officer and member of Parliament, said that Colonel Chornobai was among about 300 people working in the military sphere who had been arrested since the start of the conflict.

The arrest further deepened mistrust of the leadership in Kiev that is already pervasive among the poorly equipped rank-and-file soldiers and midlevel commanders fighting on the front line. And it reinforced a view prevalent on the battlefield that the military leadership cannot be trusted to manage any weapons delivered by Western allies because of their ties to the Russian military and security service, the F.S.B.

“It’s really a huge question: Should we completely change our armed forces structure,” Mr. Koziy said, noting that one proposal was to build a second, new military structure. “Of course this idea seems very much crazy to create a whole new, parallel general staff,” he said. “But on the other hand when you look at what’s going on today inside this building, you think maybe it’s the right decision.”

I'm sure the U.S. will be happy to reprise its performance of creating another nation's armed forces (see Iraq and Afghanistan; in Iraq, the U.S. is on its second go-round -- the ISIS capture of Mosul last summer led to the collapse of the Iraqi Army).

Whitney opens his article with a rundown of what is at stake in Ukraine:

Washington needs a war in Ukraine to achieve its strategic objectives. This point cannot be overstated.

The US wants to push NATO to Russia’s western border. It wants a land-bridge to Asia to spread US military bases across the continent.  It wants to control the pipeline corridors from Russia to Europe to monitor Moscow’s revenues and to  ensure that gas continues to be denominated in dollars. And it wants a weaker, unstable Russia that is more prone to regime change, fragmentation and, ultimately, foreign control. These objectives cannot be achieved peacefully, indeed, if the fighting stopped tomorrow,  the sanctions would be lifted shortly after, and the Russian economy would begin to recover. How would that benefit Washington?

It wouldn’t. It would undermine Washington’s broader plan to integrate China and Russia into the prevailing economic system, the dollar system. Powerbrokers in the US realize that the present system must either expand or collapse. Either China and Russia are brought to heel and persuaded to accept a subordinate role in the US-led global order or Washington’s tenure as global hegemon will come to an end.

This is why hostilities in East Ukraine have escalated and will continue to escalate. This is why the U.S. Congress  approved a bill for tougher sanctions on Russia’s energy sector and lethal aid for Ukraine’s military. This is why Washington has sent military trainers to Ukraine and is preparing to provide $3 billion in  “anti-armor missiles, reconnaissance drones, armored Humvees, and radars that can determine the location of enemy rocket and artillery fire.” All of Washington’s actions are designed with one purpose in mind, to intensify the fighting and escalate the conflict. The heavy losses sustained by Ukraine’s inexperienced army and the terrible suffering of the civilians in Lugansk and Donetsk are of no interest to US war-planners. Their job is to make sure that peace is avoided at all cost because peace would derail US plans to pivot to Asia and remain the world’s only superpower.

One other aspect of the conflict in Ukraine that notably absent from the reporting of The New York Times is the dangerous unstable condition of the Ukrainian economy. This is another reason for Merkel and Hollande begging for a ceasefire. Oren Dorell, writing for USA Today has the story, "Collapsing economy is second front in Ukraine's war":

As U.S. Secretary of State John Kerry lands in Kiev on Thursday to discuss Ukraine's economy and the ongoing conflict, the military and financial impact of the war is being felt deeply across the nation. 

The country's national government is reeling from a spike in defense spending and the loss of production and trade, particularly after separatists seized Ukraine's main industrial and coal-mining regions of Donetsk and Luhansk in eastern Ukraine. 

The fighting is also creating a distraction for Ukrainian leaders under pressure by international investors to restructure a collapsing economy. Ukraine's economic output dropped by 6.5% in 2014, according to the International Monetary Fund, which has sent a team to the capital of Kiev to assess the nation's economic needs. 

In order to meet a large foreign debt due in the coming months, Ukraine needs $15 billion in assistance. IMF chief Christine Lagarde has said she would support an expanded funding plan for Ukraine in return for unspecified fiscal reforms. 

Ukraine's war effort costs $7 million a day, a $2.5 billion yearly expense that is cutting into a budget decimated by reduced revenues related to the fighting, Ukraine's Deputy Foreign Minister Volodymyr Prystaiko told USA TODAY during a recent visit to Washington. 

Defense spending, which includes items not directly associated with the day-to-day costs of the fighting, now eats up 5.2% of the national budget, compared with just 1% in 2013.

Clearly Ukraine cannot sustain this absent a massive infusion of aid from the West, something which is going to be difficult rationalize.